Our tight hiring market looks set to continue, but IT contractors will still be actively sought in 2023

We know the covid-19 pandemic had a profound impact on the way many of us work, particularly for those traditionally office-based.

Overnight, thousands of people found themselves, for the first time, working from home, writes Sam Beggs, campaigns manager at the Recruitment & Employment Confederation.

Changing times have now completed their change

Less trying for IT contractors, this transition was a test for many workers, and for companies who needed to ensure they had the right software and systems in place to make it a success.

Fast-forward two years, and Microsoft Teams, Zoom and Sharepoint are as much a part of the workplace as conference phones and meetings rooms were pre-pandemic. For many employers, the move to hybrid has been as much about embracing digital transformation as getting the physical office ‘right.’

Digital transformation? A shoo-in for IT contractors

The rise of digital transformation projects in particular has created enormous opportunity for IT contractors. The labour market is tight, demand outstrips candidate availability, and skills shortages continue to prove a challenge.

Although we’re beginning to see a slight drop in confidence in overall economic conditions, employers are still looking to hire. In fact, the REC’s most recent Jobs Outlook data shows employers in technology still planning to hire both permanent and temporary staff in the next three months.

What the first of four of our recruitment company members told us

And that data chimes with what our members are telling us.

One member said that in over 20 years of recruiting in the technology sector, demand has never been so tight.

We know that immediately after the pandemic, demand for staff in many sectors was at an all-time high because of pent-up demand and recruitment freezes. As things stabilise and we embrace the ‘new normal’, some slight cooling in the market shouldn’t come as a surprise, but it’s important not to overstate that cooling. For example, in IT, we saw a 2.2% uplift in demand and job vacancy postings for Programmers and Software Developers from mid-November to the end of November. And demand for roles, across all software languages, as well as business analysts, cyber, and cloud-based opportunities, is likely to remain steady.

Businesses need to be at the forefront of evolving technology – the pandemic has demonstrated that – and that will always create opportunities for both permanent and contract professionals.

Choosy candidates (includes contractors)

These demand and supply challenges have resulted in a lucrative candidate-driven market. Throughout the year, the REC has remarked on it being a ‘great time to be looking for work.’

According to one of our members right now, “candidates are being choosey, because they can be”.

The demand for higher salaries, more flexibility, enhanced benefits, and ‘good’ company values have become fairly standard requests from candidates. The change in motivation for permanent roles has driven pay up across the board, including contractor day rates. 

Contract vs Perm

Looking a bit more closely at the motivations behind permanent versus contract, the picture has changed somewhat post-pandemic, and other issues like changes in legislation (IR35) and Brexit have also had an impact.

For example, the demand across software development has resulted in some contractor candidates choosing to move back into permanent roles because of the much higher salaries on offer.

On the client side, the tight labour market is also affecting hiring decisions with retention often proving a challenge, something we’re seeing reflected in other sectors as well. For long-term work, the preference is still for permanent staff.

IR35 flip-flop: impact assessment

However, with so much project-based work on offer, the need for contractors remains high. Although ever changing government legislation (IR35) has certainly had an impact on the contractor market, for those in particularly sought-after roles such as cloud-based engineers, data analysts, anything to do with Microsoft - being able to name their rate, to some extent, has helped. We know a reversal of IR35 reform in its entirety is unlikely; another reason why hirers need to be pragmatic in their recruitment processes.

While remuneration is always going to be important, particularly in the current cost-of-living crisis, things like flexibility, training and progression, and wider benefits are becoming just as important.

One REC member recruiting in Scotland said that hybrid working was increasingly now seen as the ‘norm’. While some clients did offer fully remote working, others were asking staff to be in the office one day a week or once a fortnight. Interestingly, much of the demand for hybrid appears to be coming from candidates themselves, particularly at the junior to mid-level roles. Candidates at that level value training and development in the office and the hybrid options give people the best of both worlds.

The tight labour market has seen clients be more flexible about the level of experience they want from their IT perms too, choosing to bring people in to upskill them and allow them to learn ‘on the job.’ Candidates typically with between two and three years’ experience is where most demand and increased costs were coming from.

Remote contracts? They’ve got their challenges

On the flip side, an REC member recruiting in England spoke of the ‘ongoing challenges that the move to more remote contracts is having.’

 As well as the pandemic, they feel the inflexibility of the immigration system plays a major factor in candidate-supply. In the past, the tiered immigration system enabled hirers to fill gaps with talent from abroad, but in many cases, the demand from candidates abroad just isn’t there. In this particular case, the lack of suitable candidates has resulted in an uptick in “blending offshoring”, looking to candidates based in India, for example.

What we need to see in what looks like a fairly positive 2023

As set out in our Overcoming Shortages report, we know there’s a role for business and industry when it comes to tackling shortages – investing in skills, implementing Equality, Diversity and Inclusion (EDI) policies and practices, and ensuring working conditions are ‘right’ all matter.

But government also has a role to play. We need to see improvements in the careers advice offered at school, we want to see an ‘immigration for growth’ policy that allows our immigration system to flex to the needs of our labour market, and we need clarity on legislation like IR35 (of 2017, and 2021). Ministers should be aware that the political flip flop between reversing it entirely to keeping it doesn’t help, and neither actually address the issues with the off-payroll frameworks.

All in all, the picture for 2023 appears to be fairly positive. While hirers are becoming a bit more cautious, that’s a symptom of the wider economic landscape, rather than anything sector-specific. It’s important to remember the number of vacancies we’ve seen in the last 12-18 months have hit record highs, so some fall back was always expected. But fundamentally, hirers need talented, skilled people and will continue to do so in 2023.

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Written by Sam Beggs

Sam is the campaigns and government relations manager at the REC. Before the REC Sam spent time working in Parliament for a number of MPs and at a public affairs agency.

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